Positive earnings have offset some of the effects of the Coronavirus on the markets, but there are signs the situation is getting worse, notes Adam Button.
Markets pare losses from Monday's global slide as traders divide their attention on U.S. earnings and China's efforts to stem the spread of the Coronavirus. The number of confirmed cases are up more than 100-fold since Jan. 17.
China confirmed 4,515 cases of coronavirus on Wednesday, up from 2,744 a day earlier and just 41 on Jan. 17. The pace of cases accelerated on the day but has been at just above 50% since the outset. That pace would surpass the SARS total by Friday and push it over 100,000 by next Wednesday.
What's especially worrisome is that it's not just Hubei province, the increase in other provinces is taking place at nearly the same pace. While it's certainly possible to believe that Hubei is too overwhelmed to get a correct count, that's less likely elsewhere.
Internationally, Thailand remains the place to watch for signs of an international outbreak with eight cases there now confirmed. The Thailand baht was Asia's top performing currency last year but has fallen for four straight days as local stocks, especially those tourism-related take a fall.
Coronavirus Fallout
News of a planned 10% production hike by Apple (AAPL) has helped their suppliers and overall sentiment. The Japanese yen (USDJPY) regains 109, U.S. crude has dropped to $53.40 and the U.S. 10-year Treasury note yield is at 1.62% from 1.57%. U.S. durable goods orders and consumer confidence are due up next.
The Fed meeting this week is suddenly more meaningful. The U.S. two-year/five-year note curve inverted on Monday and the spread between three-month bills and 10-year Treasury notes is down to just 3 basis points. Judging by the Federal Reserve’s recent playbook, there will be a dovish tilt in an effort to support stocks and calm volatility. All eyes will be on the surging debate about the Fed's repo injections.
It's early but the Fed is right to worry. SARS (Severe Acute Respiratory Syndrome) cut 0.8% to 2% of GDP growth from China in 2003. The economy is completely paralyzed right now and many shutdowns through the week of Feb. 10 have already been announced. China railway traffic and passenger flights were down 42% year-over-year on Saturday, the first day of lunar new year.
First, the Fed will get some final pieces of data on Tuesday with durable goods orders, the consumer confidence report and Apple earnings.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
